Rule 272 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Rule 272 of the Income-tax Rules, 2026 allows a film producer the entire cost of production in the year of certification where all exhibition rights are sold, or where the film is released commercially at least ninety days before the year end — otherwise the deduction is capped at amounts realised.
The scheme
Sub-rule (1) of rule 272: in computing the profits and gains of the business of production of feature films carried on by a person — the film producer — the deduction for the cost of production of a feature film certified for release by the Board of Film Censors in a tax year is allowed in accordance with sub-rules (2) to (4). The 1962 parallel is rule 9A.
Everything turns on what the producer did with the film in the tax year of certification. There are three outcomes.
Full deduction — sub-rule (2)
| Clause | What the producer did in the year of certification | Deduction |
|---|---|---|
| (a) | Sells all rights of exhibition of the film | Entire cost of production |
| (b) | Himself exhibits the film commercially in all or some areas; or sells rights for some areas; or both — and the film is released for exhibition on a commercial basis at least ninety days before the end of that tax year | Entire cost of production |
Where the producer sells all rights, clause (a) gives the full deduction with no release requirement at all — he is out of the film entirely and the cost is spent. The ninety days in clause (b) applies where he has retained an interest, by exhibiting himself or by selling only some areas. The rationale is matching: a film released less than ninety days before the year end has not had time to earn, so a full write-off would front-load the loss against income the film has not yet produced. A release date is therefore a tax decision as well as a commercial one, and the ninety days is counted before the end of the tax year, not from certification.
Capped deduction — sub-rule (3)
Where the producer did any of the things in clause (b) — exhibited himself, sold some areas, or both — but the film was not released commercially at least ninety days before the year end, the cost of production is allowed only so far as it does not exceed:
- the amount realised by exhibiting the film on a commercial basis; or
- the amount for which the rights of exhibition are sold; or
- the aggregate of both,
and the balance, if any, is carried forward to the next following tax year and allowed as a deduction in that year.
No deduction — sub-rule (4)
Where, in the year of certification, the producer does not himself exhibit the film commercially and does not sell the rights of exhibition, no deduction is allowed that year and the entire cost of production is carried forward to the next following tax year and allowed there.
| Situation in the year of certification | Deduction under rule 272 | Carry forward |
|---|---|---|
| All rights sold | Entire cost | None |
| Partly exploited; released ≥ 90 days before year end | Entire cost | None |
| Partly exploited; released < 90 days before year end | Capped at amounts realised | Balance to the next year |
| Neither exhibited nor sold | Nil | Entire cost to the next year |
Note that in both carry-forward cases rule 272 allows the amount in the next following tax year without repeating any condition. The postponement is for one year only; it is not a rolling test applied again.
The crediting condition
Sub-rule (5) opens with "irrespective of anything contained in sub-rules (1) to (4)" and imposes an accounting condition on the whole rule. No deduction unless:
- (a) where the producer exhibited the film, sold the rights, or both — the amount realised, the amount for which rights were sold, or the aggregate, is credited in the books of account for the year in which the deduction is admissible; or
- (b) where he transferred rights on a minimum guarantee basis — the minimum amount guaranteed and any amount received or due in excess of it are so credited; or, where he follows the cash system, the amount received towards the minimum guarantee and any excess received.
Sub-rule (5) is the provision that defeats an otherwise valid claim. The deduction and the corresponding receipts must land in the same year's books. Note the different treatment of a minimum guarantee: on the mercantile basis both the guaranteed amount and any excess received or due must be credited; on the cash basis only what is actually received. A producer who defers recognising a minimum guarantee to a later year loses the deduction in the earlier one, whatever sub-rules (2) to (4) would otherwise allow.
The Assessing Officer's residual power
Sub-rule (6): where the officer is of the opinion that the rights have been transferred by a mode not covered by this rule, or that having regard to the facts and circumstances it is not practicable to apply the rule, he may allow the deduction in such other manner as he may consider suitable.
That is an unusually wide power, and it cuts both ways. It exists because film exploitation arrangements evolve faster than the rule, and it lets a producer whose deal fits no limb of rule 272 obtain a deduction rather than none. It is worth invoking expressly where a modern digital or platform licensing arrangement does not map onto "exhibits" or "sells the rights of exhibition".
Two timing definitions
Sub-rule (7): "sale of the rights of exhibition" includes the lease of such rights or their transfer on a minimum guarantee basis. And the rights are considered sold only on the date:
| Case | Date of sale |
|---|---|
| Ordinary case | When the positive prints are delivered by the producer to the purchaser of the rights |
| Where the agreement provides that the distributor will make the positive prints | When the negative is delivered by the producer to the film distributor as defined in rule 273 |
Delivery, not signature, is the trigger. A contract signed in March with prints delivered in April sells the rights in the later year, which can move the whole computation.
What "cost of production" excludes
Sub-rule (8): "Board of Film Censors" means the Board constituted under the Cinematograph Act, 1952. "Cost of production" means the expenditure incurred on producing the film, not being:
- expenditure on the preparation of positive prints; and
- expenditure on advertisement of the film after it is certified for release.
And the cost is reduced by any subsidy received under a Government scheme where that amount has not been included in the total income for any tax year.
The two exclusions are not disallowances — print and post-certification advertising costs are ordinary business expenditure deductible on their own footing. They are simply outside the rule 272 mechanism, and so are not caught by its deferral rules.
Worked example
| Facts | Position under rule 272 |
|---|---|
| Certified in June; all rights sold in August | Entire cost — no release test |
| Certified in June; released 15 October; year ends 31 March | Entire cost — more than ninety days |
| Certified in December; released 20 February | Capped at amounts realised; balance to the next year |
| Certified in February; neither exhibited nor sold by year end | Nil; entire cost to the next year |
| Rights contracted in March, prints delivered in April | Sold in the later year |
| Distributor to make prints; negative delivered in March | Sold in the earlier year |
| Minimum guarantee due but not credited that year | Deduction fails — sub-rule (5)(b) |
| Cash-system producer; guarantee not yet received | Only amounts received need be credited |
| Positive print costs incurred | Outside cost of production; deductible on ordinary principles |
| Advertising before certification | Within cost of production — the exclusion is post-certification |
| Exempt Government subsidy received | Cost of production is reduced by it |
| Platform licensing deal fitting no limb | Ask for sub-rule (6) treatment |
Compliance checklist
- Fix the tax year of certification by the Board of Film Censors — the whole rule runs from it.
- Establish whether all rights were sold, which removes the release test.
- Count the ninety days back from the year end, not forward from certification.
- Where capped, compute the amounts realised and rights consideration and carry the balance forward one year.
- Credit the corresponding receipts in the same year's books.
- On a minimum guarantee, apply the mercantile or cash version of sub-rule (5)(b) as applicable.
- Date a sale of rights by delivery of prints or negative, not by the agreement.
- Keep print costs and post-certification advertising outside cost of production, and reduce it by any exempt subsidy.
Common mistakes
- Applying the ninety-day test where all rights were sold.
- Counting ninety days from certification instead of before the year end.
- Claiming the full cost on a late release without capping it.
- Dating a rights sale from the agreement rather than delivery.
- Failing to credit the minimum guarantee in the year of deduction.
- Including print and advertising costs in cost of production.
- Netting an exempt subsidy twice, or not at all.
Which year this governs
The Income-tax Rules, 2026 are made under the Income-tax Act, 2025. The 1962 parallel to rule 272 is rule 9A, given for tracing only. Verify the current text before finalising a production year's computation.